Knee Jerk Responses To BOE "Aggressive" QE Expansion

Reuters summarizes the immediate responses from Wall Street on the BOE's surprising and substantial QE expansion.

LABOUR FINANCE SPOKESMAN ED BALLS (TO BBC TV)

"I think we see the Bank trying to step in to bail out the government but the problem is with interest rates so low, with confidence depressed, it's very hard for monetary policy to make a difference.

"It's like pushing on a string and it's harder because this time the Bank is trying to support growth but fiscal policy and the government's budget decisions, are actually making it harder; they are depressing growth and confidence through contraction. The real change we need is for the chancellor and David Cameron to say we are getting fiscal policy wrong, we are going too fast, to slow the pace of deficit reduction, to listen to the IMF and to others."

MICHAEL SAUNDERS, CITI

"I think it's the right thing to do, I think they will do lots more QE. What is important is they are moving ahead of consensus and that is likely to have a fairly powerful downward effect on yields, which is what they want to achieve. And they will go on doing QE until prospects for the economy improve significantly, or until they own the whole gilt market."

"He said his 'best guess' was the Bank of England would do 300 billion pounds of QE on top of the 200 billion done so far, bringing the cumulative amount to 500 billion. "Today's 75 is part of that 300. But that's only a rough guess and the key point is it is going to come in large scale."

"It's both that the economy is weak but also that the MPC's view is that QE is not a very powerful tool, or rather it takes a large amount of QE to have much effect on the economy. I think that in the markets people don't appreciate that what comes from that is that the MPC will use QE in a very large scale because it is only in very large scale that QE has a notable effect."

BRENDAN BARBER, GENERAL SECRETARY, TRADES UNION CONGRESS

"As government policies are running the economy into the ground, the Bank of England is right to resume quantitative easing.

"But while it is better than not doing anything, quantitative easing is no economic magic wand.

"We worry that it does more to help the finance sector than the rest of the economy and could fuel further inflation at a time when living standards are already being squeezed."

"With the risks to the economic outlook increasing, the MPC has acted promptly by extending quantitative easing this month.

"This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest.

"Only once the turmoil in the euro zone is resolved will confidence be fully restored."

JONATHAN LOYNES, CAPITAL ECONOMICS

"The Committee finally recognises that the major threat to the UK is renewed recession, not inflation. But previous experience suggests that the positive impact on the economy is likely to be modest.

"The accompanying statement put emphasis on the implication that there is more slack in the economy than previously thought. Unless the news on the economy improves markedly very soon, it seems unlikely that the MPC will conclude in four months that it has done enough.

"It would be optimistic to hope that the launch of QE2 will significantly brighten the outlook for the economy. The risks of recession remain alarmingly high."

PHILIP RUSH, NOMURA

"By making purchases over four months, (the BoE) has afforded itself the forecast round for the February Inflation Report to calibrate and communicate its next response.

"Meanwhile by ramping it up to 75 billion pounds, the MPC has delivered 'shock and awe' and given itself enough ammunition to maintain a high run rate of gilt purchases.

"Purchases should be aimed at conventional gilts further out the curve than last time, owing to pre-existing ownership stakes and the MPC's perception of where it has the greatest potential to reduce yields.

"We still expect the MPC to follow through with a further £25bn of asset purchases when it reassesses its forecasts in February. We also think the impact of these purchases will disappoint relative to the Bank's estimates of QE1's impact. Our working assumption is that the price level will be raised by about 0.5 percent but the impact on real activity is only about half that."

GRAEME LEACH, CHIEF ECONOMIST, INSTITUTE OF DIRECTORS

"What did we want? More QE. When did we want it? Now.

"Near zero GDP and money supply growth made a compelling case, and the Bank of England was right to launch QE2.

"It could be argued that the Bank of England was slow to introduce QE the first time, but thankfully it hasn't made the same mistake twice."

JAMES KNIGHTLEY, ING FINANCIAL MARKETS

"This latest 75 billion pounds increment should be considered the next downpayment on stability, rather than the last word on QE.

"And we would not be surprised to see the total asset purchase spend rise to 500 billion pounds, with this round of QE starting with today's 75 billion pounds eventually adding a further 300 billion pounds to the QE1 total.

HOWARD ARCHER, IHS GLOBAL INSIGHT

"The fact that the MPC chose to act now on QE and to go for 75 billion pounds rather than 50 billion pounds reflects the fact that they believe an already difficult outlook for the economy has deteriorated amid mounting domestic and global headwinds.

"The MPC expects the new programme of QE to take four months to complete. We suspect that further QE will then be extended further in the first quarter of 2012.

"However, it seems unlikely that the Bank of England will take interest rates any lower than 0.50 percent, although the minutes of the September MPC meeting indicated that they reviewed this option.

"It is apparent though that any interest rate hike has disappeared into the horizon. Indeed, we do not expect any increase in interest rates before 2013."

JOHN WALKER, NATIONAL CHAIRMAN, FEDERATION OF SMALL BUSINESSES

"With growth revised downwards yesterday, pumping more money into the economy through quantitative easing is welcomed.

"However, it is important that in an attempt to boost short-term demand that small businesses can directly benefit from this cash injection and that the banks use it to decrease the cost of credit and to increase the availability of lending.

"While the introduction of credit easing aims to give small businesses access to credit, we also need to see a commitment to keep interest rates low until the economy has seen a prolonged period of growth."

JEREMY STRETCH, CURRENCY STRATEGIST, CIBC

"They've taken a fairly aggressive step. That they've moved with 75 billion (pounds) is indicative of the scale of the uncertainty and the strains they are feeling in the global markets ... This shows the BoE will be aggressive from this point forward.

"Clearly it's a net negative for sterling."

YUSUF HEUSEN, SALES TRADER, IG INDEX

"It's a good injection of capital. We now just need to see a coordinated effort from the rest of Europe to sort out the recapitalisation of European banks and it should form a decent base to move forward.

"It takes away quite lot of risk. This is positive for the market."

CHRIS WILLIAMSON, CHIEF ECONOMIST, MARKIT

"The MPC has chosen to waste no further time in injecting additional stimulus into the flagging recovery in the face of a rapidly deteriorating economic environment."